28 BULLETIIT 1106, V. S, DEPARTMENT OF AGEICULTURE. 



to this fact. The court emphasized the fact that the association was 

 something more than a mere selling agency, as it dealt with mem- 

 bers and nonmembers. Some weight w^as apparently attached to the 

 fact that the association often paid nonmembers more for their hogs 

 than it paid members. 



In a later case ^^ the Supreme Court of Iowa held a by-law of a 

 cooperative association invalid as in restraint of competition which, 

 among other things, provided that any member should pay 1 cent 

 per bushel as liquidated damages for all grain which he might sell 

 to competitors of the association who might offer more for grain 

 than the association. It appeared that a member sold 13,000 pounds 

 of pork and 4,000 bushels of oats to competitors of the association 

 in a particular market, and the association attempted to deduct 

 $10.50 on this account, in accordance with the by-law, from dividends 

 amounting to $45.25 which were due him. The member then brought 

 suit against the association to recover the entire amount, $45.25, and 

 won. In holding the by-law invalid in this case, the court did so on 

 the authority of the earlier case which has been discussed. 



In a Colorado case ^^ a by-law provided that .stockholders might 

 sell grain to competitors of the association in a particular town, by 

 paying 1 cent per bushel to the association for all grain so sold. A 

 stockholder who had agreed to the by-law sold 3,500 bushels of 

 grain to a competitor of the association, and it brought suit against 

 him to recover $35. The by-law was held invalid on the ground that 

 it was in restraint of competition, and the association lost the suit. 

 In this case the association dealt with members and nonmembers. 



In many of the States there are statutory provisions relative to 

 liquidated damages, and such provisions should be carefully heeded.^" 

 Whether the provision in the by-law or the contract of an associ- 

 ation which purports to require a member to pay a certain sum of 

 money to the association in case he disposes of produce or live stock 

 outside the association will be held valid in a particular State will 

 depend upon the constitution, statutes, and general law thereof. 



In all States the amount named as liquidated damages should be 

 a reasonable one and not an amount manifestly in excess of the 

 damages that may be suffered. The by-laws in the Iowa and Colo- 

 rado cases were held invalid on the theory that they were opposed 

 to public policy in that they tended to restrain trade or competi- 

 tion. No statute seems to have been involved in any of the cases 

 relating to cooperative associations in which the question of the 

 legality of liquidated-damage clause provisions was raised. 



"^ Ludewese v. Farmers' M. C. Co., 164 Iowa 197, 145 N. W. 475. 

 »6 Burns v. Wray Farmers' Grain Co., 65 Colo. 425, 176 Pac. 487. 

 s'' stark V. Shemada, (Calif.) 204 Pac. 214. 



